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Personal Loan Preapproval vs Prequalification: What’s the Difference?

When getting a personal loan, you may have the option of being prequalified or preapproved. Personal loan preapproval and prequalification are both precursors to full approval, though they mean very different things. If you’re planning to apply for a personal loan, here’s a closer look at what it means to be prequalified versus preapproved. 

Personal loan prequalification: What is it?

Loan prequalification means that you’ve taken some initial steps toward getting approved by a lender. Those steps can include:

  • Completing a personal loan prequalification application
  • Providing a lender with some basic information about your finances and credit
  • Agreeing to a soft pull of your credit report

If you’re prequalified for a loan, it means that the lender has done a cursory review of your finances. Based on that, they’ve identified you as a potentially creditworthy candidate for a loan. From there, a lender can offer you an estimate of the loan terms you may qualify for.

What does it mean to be preapproved for a loan?

Personal loan preapproval involves some of the same steps as prequalification. You’ll need to complete a simple application and share some basic information about your credit and income with the lender. 

The difference between loan preapproval and prequalification typically centers on what else the lender expects. For example, you might be asked to provide some of the same supporting documentation that you’d need for a full loan application, such as:

  • Pay stubs
  • Bank statements
  • Tax forms

Another key difference with preapproval is that the lender may decide to perform a hard check of your credit. Unlike a soft credit pull, hard credit checks can show up on your credit report. Each one can knock a few points off your credit score. 

Lenders can use a hard credit check to determine whether to conditionally approve you for a loan. That’s essentially what personal loan preapproval means — you’ve passed the lenders initial tests for creditworthiness. 


Preapproval vs. prequalification: Which is better?

The most important thing to keep in mind about being preapproved or prequalified for a personal loan is that neither one is an absolute guarantee that you’ll be able to get a loan. Whether you’re prequalified or preapproved, you still have to complete the regular loan application and approval process before you’re able to borrow. 

Whether prequalification or preapproval is better typically hinges on how the lender approaches it. For instance, getting prequalified without a hard check of your credit could result in getting a very general loan quote that doesn’t reflect your credit history or scores. Preapproval, on the other hand, could give you a more accurate picture of the loan terms you’ll qualify for if the lender has taken the time to review your credit first. 

But, the trade-off is that preapproval can leave a lasting mark on your credit report while prequalification may not. For that reason, it’s important to check beforehand to see whether a lender uses a hard or soft credit pull for loan prequalifications or preapprovals. If you want to avoid a credit score hit while you’re shopping around for loans, then you may be better off choosing prequalification if it’s limited to a soft credit check.

RELATED: How Do Personal Loans Affect Your Credit Scores?

How to get prequalified or preapproved for a personal loan

If you’re interested in getting a personal loan, it helps to be as prepared as possible. Here are a few things you can do to potentially increase your odds of being prequalified or preapproved. 

  • Review your credit. Whether a lender performs a hard or soft pull of your credit, it’s helpful to know what they’re going to see. Checking your credit reports and scores before applying for prequalification or preapproval can give you an idea of what loan terms you’re likely to qualify for.
  • Address credit trouble spots. While checking your credit reports, look for things that could be hurting your score. Late payments and high utilization ratios are the worst culprits. But even simple errors, such as an account that’s being misreported, can hurt your score. If you see any credit reporting errors, you can dispute them to have them corrected or removed with the credit bureau that’s reporting them. 
  • Compare lenders and loans. Before submitting a loan application, take time to get to know what different lenders offer and what they look for in a typical borrower. This can help you eliminate loans that don’t meet your needs or lenders whose requirements don’t match your credit history and income. 
  • Be thorough. When applying for prequalification or preapproval, double-check your application before submitting it. Leaving out information or including incorrect information could cause you to be denied for either one. 

If you’re able to get preapproved or prequalified, you can then complete the full loan application to get approved. Once you’re presented with the final loan terms, review them to make sure you’re comfortable with the interest rate, fees and payment schedule before signing on the dotted line.

RELATED: The 6 Biggest Mistakes When Taking Out a Personal Loan

What happens if you can’t get prequalified for a personal loan?

If you’re denied for a personal loan prequalification, you may be wondering whether you can change the lender’s mind or what other options you have for borrowing. Try these steps next if you’re unable to get prequalified initially:

  • Ask for reconsideration. Reach out to the lender you applied for prequalification with to find out why you were denied. If the reason was a lack of paperwork or a past credit mistake, you could ask them to reconsider. But you’ll need to be able to prove your ability to repay what you borrow. 
  • Double check your credit. If you only checked one of your credit reports prior to prequalification, it’s possible that you might have missed something that’s hurting your credit. Late payments and high credit utilization can work against you but credit reporting errors can as well. If you spot an error on your report, you can dispute it with the credit bureau that furnished the information. 

RELATED: Can’t Qualify for a Personal Loan? Here’s How to Fix the Problem

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Rebecca Lake

Rebecca Lake is a freelance writer specializing in personal finance, credit and debt. She’s a contributor to U.S. News and World Report, Forbes Advisor and The Balance and her work has appeared online at, MyBankTracker, and dozens of other top publications.

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2020-11-22T20:01:39-08:00November 6th, 2020|Personal Loans|
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